Monday, November 02, 2009

CIT Bankruptcy Shakes Asia

From Channel News Asia:
HONG KONG - Asian markets tumbled Monday as a heavy loss on Wall Street at the end of last week was compounded by the bankruptcy of US bank CIT at the weekend, hitting confidence for a global economic recovery.

Tokyo lost 2.31 percent, Sydney 2.21 percent and Seoul 1.37 percent as dealers went into selloff mode. Hong Kong lost 0.61 percent, after having been almost three percent lower at one point.

Wall Street had plummeted 2.51 percent on Friday as confidence whipped up by the gross domestic product data was wiped out by worries that CIT Group, one of the largest small-business lenders in the United States, was in trouble.

Those fears were realised on Sunday when the bank filed for Chapter 11 bankruptcy with its board approving a "prepackaged" restructuring plan to shed 10 billion US dollars in debt.
This comes after a $2 billion US-taxpayer bailout...I want my money back!

IMHO, the bankruptcy judge ought to make darn sure all the CIT execs refund their bonuses as part of any workout.

UPDATE from TechTicker at Finance.Yahoo.com:
The prepackaged plan allows CIT to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses. The plan keeps CIT's operations alive and makes it possible for the company to exit bankruptcy by year's end.

But here's the bad news: While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer.

William Black, professor at the University of Missouri-Kansas City School of Law is dumbfounded. "We put ourselves on the hook in a completely inept way where we lose first. We lose entirely as the taxpayers."

Black, a former top federal banking regulator, blames Treasury Secretary Timothy Geithner for negotiating such a bad deal on behalf of the American public.

His argument goes as follows:

The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we'd be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, "it's like he [Geithner] burned billions of dollars again in government money, our money, gratuitously," says Black.
Here's a link to William Black's book at Amazon.com: